Life Settlements – Is the Market Dying?

The recent deal for Fortress Investment Group securing the $6.2bn portfolio of distressed assets from KBC Financial Products was the major deal in the market of this year. It highlights the range of deals that institutions are able to consider when approaching the Life Settlement market as well the inherent strength that is still there with deals of this magnitude taking place. Of more interest though was the fierce competition that took place around this deal with the saga unfolding in the media as parties made open comments as well as behind closed doors. There had been some murmurings as to how the industry was holding up over the last 12 months but this deal would seem to offer a clear indication that the appetite and demand is still there. The deal size is obviously not accessible to many organisations but this scale of transaction has a collateral effect that cascades down to smaller organisations suggesting to all considering this asset class that there is demand and there are good deals to be had on the supply side.

The sourcing of policies remains at the core of solid product creation in the Life Settlement and longevity product space. Without prudent measures from the start, the product can be running unnecessary risk levels and could be faced with liquidity valuations. Investors looking to create or expand portfolios need to ensure that the partner they are working with has strong track record in the sourcing areas. It is vital to ask them for transparency in this area – why should a product suffer from the desire to sell the sourced policy at a discount? Accusations of the market are often focused on the need for transparency and this would seem to be an important area to start with as the bedrock of the product. Risk management is also vital as we have seen with difficulties in equity and debt products in the mainstream market and the same rules of prudence, understanding and desire for transparency should be applied by investors in longevity products.

Investors should want the best possible policies for their portfolio that mean they can manage their risk and return profile. Some institutions feel that by tying themselves to a particular broker or some other direct source of policies, they are able to get better deals. Someone is benefiting from these better deals but it may not be the investors in the product. Independence is a key strength in the industry as it allows objective review of policies and valuations which is a much more prudent approach to product development. Equally, a wider search of policy sources will logically lead to a bigger range of possible policies to ensure that the most appropriate ones are obtained based on the product specifications. While tie-ins may on the face of it provide ‘better deals’ for some element of the chain, market dynamics will always tell you that a competitive environment is better for a well-balanced structure.

 

Wharton Advisors Corp. Updates

  • Improving Models

    The use of actuarial data has rightly been the cornerstone of the Life Settlements industry.


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  • Longevity Protection: Bringing the Life Settlement Market into the 21st Century.

    The Life Settlement Market had seen exponential growth over the last 15 years

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  • Life Settlements – Is the Market Dying?

    The recent deal for Fortress Investment Group securing the $6.2bn portfolio of distressed assets from KBC Financial Products was the major deal in the market of this year.

    Read more